LONDON, Feb. 8 (Reuters) – Misuse of climate models could pose growing risk to financial markets by giving investors a false sense of certainty about how the physical impacts of climate change will unfold, say the authors of a paper published on Monday . .
With heatwaves, wildfires, massive storms and sea-level rises expected to increase as the planet warms, companies are under increasing pressure to disclose how the disruption could affect their businesses.
But the authors of a peer-reviewed paper here in Nature Climate Change warned that the drive to integrate global warming into financial decision-making had increased the models used to simulate climate for “at least a decade.”
“In the same way that a Formula 1 Grand Prix car is not what you would use to go to the supermarket, climate models have never been developed to provide detailed information for financial risks,” said Andy Pitman, climate scientist at the University of New. South Wales and a co-author of the article.
Improper use of climate models could lead to unintended consequences, such as “greenwashing” some investments by downplaying risks, or hurting companies’ ability to incur debt by exaggerating others, the authors said.
The problem is that existing climate models have been developed to predict temperature changes over many decades, on a global or continental scale, while investors generally need location-specific analysis over much shorter time frames.
Also, climate models are not designed to simulate extreme weather events, such as storms, which can cause sudden financial losses.
To bridge the gap, the authors called for the development of new forms of climate projection to support the financial sector, supported by “climate translators” qualified to help regulators, investors and businesses make better use of science.
“Companies like to use models because the numbers give them a sense of security,” said Tanya Fiedler, a University of Sydney lecturer and lead author of the paper. “It doesn’t necessarily mean the numbers are reliable.” (Reporting by Matthew Green; edited by Hugh Lawson)